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Gamuda - KVMRT Line 2 Preview

Date: 14/05/2013

Source  :  PUBLIC BANK
Stock  :  GAMUDA       Price Target  :  4.26      |      Price Call  :  HOLD
        Last Price  :  4.60      |      Upside/Downside  :  -0.34 (7.39%)

We attended a luncheon hosted by Gamuda‟s management, and were briefed on updates for the Klang Valley MRT Line 2. Salient points as below:

KVMRT Line 2 expected to be announced in July 2013. We understand that feasibility studies for Line 2 (Sg Buloh – Serdang - Putrajaya) have been completed and the Land Public Transport Commission (SPAD) would be submitting its findings soon for Cabinet approval. The timing of the approval is crucial as it would take approximately two years from the approval date to start construction, hence the ideal start to Line 2 would be in mid-2015 after the civil works for Line 1 MRT-SBK are completed, implying that approval should be obtained by July 2013 to ensure continuity of construction work.

Valued at c. RM24.9bn. The management estimates that the construction cost for Line 2 would be c. RM24.9bn, based on Line 1 actual contract rates that were awarded between 2012 and 2013. Total length of Line 2 is 56km, with 11km underground and 45km being the elevated portion. The project would be implemented in two phases, with Phase 1 from Sungai Buloh to Serdang and Phase 2 from Serdang to Putrajaya.

Gamuda a likely winner. We believe that Line 2 will continue using the project delivery partner (PDP) structure following its successful implementation in Line 1. As such, we are optimistic on Gamuda‟s chances of playing the role of PDP in the new project, given its track record and performance in managing the MRT-SBK project. We also believe Gamuda stands a high chance of winning the tunneling portion of the Line 2 project, its main competitive advantage being the ten tunnel-boring machines that it would have ready for deployment after the completion of Line 1. Nonetheless, we opine that the stock is fully valued at this point after the runup in share price post-GE, and maintain our Neutral recommendation with unchanged TP of RM4.26.

Source: PublicInvest Research - 14 May 2013

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